MI vs. Amazon

Amazon is a 600-pound gorilla. Whether through organic growth, the entry into new industries or via acquisitions, Amazon, which now retails most anything you can think of, as well as being an original TV content powerhouse, has become a true goliath. For its fiscal 2016 (the most recent full year of results available), Amazon achieved a whopping $136 billion in net sales and $2.37 billion in net profits. And these results do not include the acquisition of Whole Foods Market, so expect these numbers to rise significantly. And who’s to say where these numbers will reach should Amazon enter the pharmacy market or other areas? For its most recently reported fiscal third quarter, ended Sept. 30 (the company plans to report on fourth-quarter results in days), Amazon saw net sales increase 34 percent year over year to $43.7 billion, with net profits coming in at $256 million. On the day following this earnings announcement, the company’s NASDAQ National Market’s market capitalization increased by $62 billion in just one day. To put that in perspective, Amazon’s market capitalization rose approximately the entire equivalent value of General Motors in a single session.

Hence, things are definitely going right for Amazon regarding its financial standing, with Bitcoin perhaps being the only thing that’s talked about more. But although Amazon is raking in cash and has a loyal customer base that lauds its customer service and rapid shipping, not everyone is pleased with the retail giant. MI manufacturers have experienced problems with Amazon recently, with two of the biggest concerns being the retailer’s return policy and counterfeit products being sold on the website.

In fact, Electro-Harmonix (E-H) was the first to announce it was terminating its relationship with Amazon.

“We sent a letter to Amazon in May, stating we will not supply them with product any longer,” Mike Matthews, founder of E-H, told the Music & Sound Retailer during a phone interview.

He added that as a vendor, he has had several problems with Amazon, including its return policy. “With Amazon, customers can return a product for any reason and get immediate credit,” said Matthews. “In addition, if the customer checks off that the product wasn’t working or functioning, then the return is free freight, no questions asked. So, most consumers check off that the product is not working. And then, when Amazon returns the product to us, they charge what we feel are exorbitant shipping costs.”

A second reason why E-H terminated its relationship with Amazon is due to MAP pricing, E-H’s founder told the Retailer. Matthews noted retailers can have “stores” on Amazon’s site that sell E-H products below MAP, and it is difficult for the vendor to decipher who the violator is. This is because of Amazon’s policy of “co-mingling” shipments as it decides. This makes it impossible to decipher from serial numbers just who the alias really is.

“It even reached the ridiculousness where Amazon was complaining to us about people selling below MAP on their site under alias names,” said Matthews. “They wouldn’t tell us who it is, yet they are complaining to us about it. It’s absurd.”

“Most of our stores are extremely excited about this policy,” Matthews said. “I believe enough dealers will be pleased they don’t need to compete with Amazon regarding our products and will put more emphasis on stocking and selling Electro-Harmonix.”

Joseph Turek, CEO of Sound Enhancement LLC, followed suit, announcing Morely and Ebtech products would no longer be sold on Amazon.

“When we purchased the Morley business in 2016, we took the time to understand our brands and our place in the market. We visited our top customers and asked them what we needed to do to keep them healthy and alive. The resounding comment that came back was to upgrade our product, remake our website and get rid of Amazon as a customer. Quite frankly, we were shocked at this statement about Amazon. But after hearing the same message over and over, we began to take note.

“We started to compare what value our dealer network brought to the table versus what we saw with Amazon,” continued Turek. “When you peel back the onion, the picture is rather shocking. Our dealers bring real value to the consumers of our products. They offer real customer service with a human being knowledgeable about our products. They offer advice on how our products work, tips on how to interconnect devices, other products that augment our line and real hand holding when necessary. That is a huge commitment from our dealers with investments in human resources, training and systems. What does Amazon do with respect to customer service? Nothing! You cannot reach a human being for any problem. All the consumer can do is send a product back without recourse and post a message saying how disappointed they were. Unfortunately, these comments are addressed to Morley and not to Amazon. Our brand can get tarnished unjustifiably with no reflection on the lack of support from Amazon. That is just not right.”

Amazon’s Cecilia Fan responded with the following to a request for comment from the Music & Sound Retailer: “Amazon has a thorough, efficient appeals process for returns sellers believe to be fraudulent.”

Regarding price, she noted, “We want customers to buy with confidence anytime they make a purchase on Amazon. This includes the confidence that they will find prices as low as anywhere else. We obsess over the things we believe customers will always care about — low prices, vast selection and fast delivery — and work hard to provide all three, all the time.”

MI retailers who sell products on the popular website Reverb.com can expect a different experience, according to Reverb’s CEO and founder, David Kalt.

“Sellers on Reverb are empowered to select or create the return policy that fits their business and lifestyle. Some choose not to accept returns, some create a custom policy based on, for example, the policies of their physical store, and others select our ‘Reverb Recommended’ return policy, which is based on our experience buying and selling gear online,” Kalt told the Retailer. “Most buyers and sellers on the platform are able to work out any return activity on their own based on the policies set by the seller, but when an issue does arise, Reverb’s customer service team is available via email, chat, and phone to help the buyer and the seller come to a resolution. One of the biggest benefits of selling on Reverb, and one of the biggest differentiators when compared to other options for selling gear online, is our customer engagement team. It essentially acts as an extension of each seller’s business.”

Knock Off the Knockoffs

Counterfeit MI items are another problem manufacturers face on Amazon. String Swing has fought this battle head on.

“We purchased a guitar hanger that looks and feels a fair amount like a String Swing, but it’s not,” Travis Thieman, vice president of Ontario, Wis.-based String Swing, told the Retailer. “It came in a package that says String Swing, and it says String Swing on it. Someone who didn’t work with or know the product well wouldn’t think anything of it until they install it or use it and realize it’s not very good quality. The mounting hardware and components are not anywhere near as high a quality compared to our products. But at first look, it’s a decent reflection [of our products].”

According to Thieman, String Swing has contacted Amazon, which has not been quick to resolve the issue. However, the online retailer is working on a new level of brand registry, expected to roll out shortly, that String Swing is “eager to take part in.”

“But up until that point, anyone can go on [Amazon] and say I have one of those for sale, ship into the Prime system and sell it, regardless if it is authentic or not, until you can prove otherwise to Amazon, which can be quite a task,” Thieman said.

Thieman relayed String Swing is not alone. Several other manufacturers, whether in MI or not, have also faced this issue. Counterfeiters clearly believe the financial upside outweighs the effort it takes to illegally copy a product.

“I’m not an expert in this, but what I understand is happening and what I believe happened with our product is someone can go to a website, such as Alibaba, and find a manufacturer in China, send them a sample of what you want, and if the company is willing to violate IP [intellectual property] rights, they make a product that’s so close the lay person can’t tell. You can source that product for a fraction of the cost than a legitimate dealer and then resell it at a much higher margin.”

RØDE Microphones has also likely faced the counterfeit problem. At the very top of its website, RØDE issued the following statement last year:

“Important information about purchasing from Amazon in the U.S.: RØDE Microphones does not authorize Fulfilled by Amazon. We have purchased counterfeit RØDE products using Fulfilled by Amazon and highly recommend that you only purchase RØDE products from authorized dealers. If you purchase any RØDE microphone from an unauthorized dealer via Fulfilled by Amazon, you will not receive any U.S. warranty or technical support.”

“Amazon is constantly innovating on behalf of our customers and working with brands, manufacturers, rights owners, and others to improve the ways we detect and prevent counterfeit products from reaching our marketplace,” answered Amazon’s Fan, regarding counterfeits. “When a business registers to sell products through Amazon’s Marketplace, Amazon’s automated systems scan information for signals that the business might be a bad actor, and Amazon blocks those bad actors during registration before they can offer any products for sale. Amazon invests heavily in innovative machine learning to improve our automated systems in order to anticipate and stay ahead of bad actors, and we employ dedicated teams of software engineers, research scientists, program managers, and investigators to operate and continually refine our anti-counterfeiting program.

“Further, Amazon’s systems automatically and continuously scan numerous variables related to sellers, products and offers to detect activity that indicates products offered might be counterfeit. Amazon also offers Amazon Brand Registry [alluded to earlier by String Swing’s Thieman], a free service that provides all rights owners with access to powerful tools including proprietary text and image search, predictive automation based on reports of suspected IP rights violations, and increased authority over product listings,” the Amazon representative continued. “Amazon Brand Registry enables us to better partner with rights owners in protecting their brands and our customers. We take this fight very seriously and work hard on this issue every day because we know that our customers trust that they are buying authentic products when they shop on Amazon.com.”

When it comes to combatting counterfeits on its website, Reverb has a three-step approach, Kalt said of his company’s anti-counterfeit strategy. “First, we have a listings team that reviews every single listing posted to the website — this is where the majority of the counterfeit products are caught,” he stated. “The team pays close attention to pictures, descriptions, price discrepancies and more to spot fakes. I can’t tell you much more than that, since I don’t want to disclose our secrets to the counterfeit product makers. Second, anyone in the Reverb community can flag listings. Reverb users are extremely active and vigilant, and if something is flagged by two users, it’s automatically taken down for further review. Finally, we utilize a third-party technology that uses machine learning to identify and match common patterns among risky buyers and listings.”

Although a counterfeit problem is certainly bad for the consumer, one could argue it could be beneficial to Amazon’s competitors. Kalt disagreed, however.

“No, I don’t think that consumers having poor experiences associated with buying instruments is a positive thing, particularly because the consumers who get conned into buying fake instruments are likely beginners, and anything that deters a new person from learning to play an instrument is bad for the entire MI industry,” he said. “Plus, nearly everyone who works at Reverb, myself included, are consumers of music gear, and many of us have experienced issues buying online pre-Reverb. It’s not fun.

“The bigger message here is that this is an issue that impacts the MI industry in a very specific way,” added Kalt. “Counterfeit instruments cannot be handled by a blanket policy that also covers counterfeit clothing, cosmetics and more. Reverb is uniquely positioned to combat this issue — and other problems unique to our industry — because we are a website specifically catered to musicians and the nuances that come with selling musical instruments online.”

On the Retail Front

Whether MI manufacturers find selling on Amazon tough sledding or not, there’s no question the online powerhouse is here to stay. Online sales in the United States were poised to grow by 15.8 percent, or $452.76 billion, by the end of 2017, reported RetailDive. Amazon was poised to capture 43.5 percent (or $196.75 billion) of that amount — almost 4 percent of all retail sales in the U.S., with overall e-commerce accounting for 9 percent of all U.S. retail sales.

“The more manufacturers empower retailers to provide the products and experiences their customers want, the more their partnership will help them gain ground in the race against Amazon’s encroachment,” Rain Retail Software noted in a statement to the Retailer. “Music retailers and manufacturers must leverage the power provided by online tools to integrate physical and digital spheres into an omnichannel experience that provides shoppers with a seamless and consistent experience. Doing so will differentiate retailers from competitors such as Amazon, helping them not only attract and retain customers, but also thrive and grow despite being in the midst of a challenging retail ‘apocalypse.’”

According to Rain CEO Sean Roylance, its point-of-sale platform is one way to gain a competitive edge. “Our omnichannel point of sale provides MI retailers an easy way to offer in-store inventory online, generating additional foot traffic to their store and increasing overall sales by 20 percent, on average,” he said.

“The standard point-of-sale system that a lot of the other retailers in the industry have been using we found was just way too difficult and outdated. Since using Rain Retail’s omnichannel point-of-sale system, we’ve seen an increase of over 35 percent in our sales. People do their research online first and then they walk into our store already knowing what they want to buy,” concluded Jeremy Chapman, owner of Springfield, Mo.-based MI store The Chapman’s Acoustic Shoppe.